UAE Economy Booms With Aviation and Construction - Essay Sample

Introduction

A massive boom in construction, expansion of the manufacturing base and thriving of the services sector aid in the diversification of the UAE's economy. Tourism comes along increasingly as a non-oil revenue source accredited to the luxurious hotels located in the UAE. On a national scale, a $350 billion worth of active construction projects is still underway in the region ("Government.ae", 2020). Another driver of growth for the UAE economy is the aviation market that is estimated to grow 170 percent by 2037, contribute $128 billion to the national economy, and supporting 1.4 million jobs (John, 2020). More emphasis on a diversified and sustainable knowledge-based economy would help the industrial sector to contribute to the region's GDP and economic growth.

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The new strategy adopted to achieve sustainable development rotates around the pillars of innovation, reduction of carbon emissions, sustainable manufacturing, focus on the small and medium enterprises, developing advanced skills, adopting the Fourth Industrial Revolution (4IR) technologies, and establishment of partnerships that would help to convert local businesses to global value chains with the aim of increasing their export prospects (John, 2020).

The UAE's economy in 2050 is poised to advance with proper implementation of fiscal and monetary policies, proper international trade, and geopolitics. The key fiscal challenges include revenue diversification, enhancing efficiency in spending, and improving policy management and coordination of the fiscal risks across the Emirates ("World Bank", 2019). Moreover, the main economic challenges related to the process of adapting the UAE's complex but successful diversification model to enhance competition in its service hubs and shifts in technology away from carbon energy.

Fiscal Policies

The UAE will reduce reliance on unneeded expenses and deviate from revenues originating from oil by increasing revenues obtained from other sources such as taxes and sovereign wealth funds to increase revenues, and pension funds and subsidies to reduce expenses (John, 2020). Come 2050, taxes should contribute at least 30 percent of UAE's revenues. Avenues for taxes include the value-added tax (VAT), corporate taxes, gasoline tax to indicate the economy's official take-off being an oil exporter, carbon emission tax levied on industries, and remittance tax with rates varying in accordance with one's income bracket (Alshaali, 2016). With no water and electricity subsidies, houses will be encouraged to install solar panels to manage their consumption appropriately and sell their excess energy back to the grid. The 2050 pension fund would reduce the economy's expenses by increasing the contribution percentages paid by the employees, carefully introducing voluntary schemes and gradual inclusion of non-UAE nationals in the public sector to the state pension fund. UAE's economy in 2050 will also be marked by an increase in sovereign wealth funds to increase the country's revenues. Part of the net profits from the wealth funds can be used in the country's budget calculations, with any remaining amount being re-invested in the funds (Alshaali, 2016). Such a model can be constructed to sustain the economy's funds at a time where excess oil revenues will no longer be deposited in the funds.

Monetary Policies

In 2050, the UAE's dirham will not be pegged to the dollar since oil will be representing zero percent of the UAE's economy. Therefore, the dirham will peg its currency to other currencies that are among its top 10 trade partners apart from the Arab countries, so long as the currencies are within the IMF's bucket of reserve currencies (Alshaali, 2016). With the unwinding of the dirham-dollar peg, the central bank will have a higher level of freedom to set its own inflation targets, interest rates, and dirham exchange rate.

Breakdown of GDP by Sector

For 2050, we expect:

Agriculture to result in a GDP of 0 percent of the economy. The UAE obtains most of its water by distilling seawater. Therefore, if vertical farming will not be adopted to produce what can be produced and sold at high values, then spending money in this sector would take resources from other sectors.

Services sector to contribute 75 percent of the economy. Tourism will replace 30 percent of the economy that was produced by oil. It is estimated that tourism makes 30 percent of the economy of Dubai ("FocusEconomics," 2020). Therefore, it will be expanded to the various emirates with specific themes attached. This will increase and diversify each of the emirate's revenues and therefore, enhance UAE's national brand.

2050 will also be marked by an efficient and operational unified energy strategy in the country that will be based on demand and supply. The year will record an increase in the contribution of clean energy with the total energy mix increasing from 25 percent to 50 percent, hence saving AED 700 billion with increased consumption efficiency among individuals and corporates by 40 percent ("Government.ae", 2020).

Conclusion

To conclude, a long-term transformation strategy for the emirate's economy would focus mainly on reducing reliance on the oil sector as a source of economic activity and increased reliance on knowledge-based industries for the future.

References

Alshaali, A. (2016). Reshaping the UAE economy for 2050. Gulfnews.com. Retrieved from https://gulfnews.com/business/analysis/reshaping-the-uae-economy-for-2050-1.1662938

"FocusEconomics", (2020). United Arab Emirates Economy - GDP, Inflation, CPI and Interest Rate. FocusEconomics | Economic Forecasts from the World's Leading Economists. Retrieved from https://www.focus-economics.com/countries/united-arab-emirates

"Government.ae", (2020). Future - The Official Portal of the UAE Government. Government.ae. Retrieved from https://www.government.ae/en/about-the-uae/uae-future

John, I. (2020). UAE marching towards becoming a $500b economy. Khaleej Times. Retrieved from https://www.khaleejtimes.com/welcome-2020/uae-marching-towards-becoming-a-500b-economy-

Srour, M. (2018). United Arab Emirates: Entering into a Sustainable Future | Inter Press Service. Ipsnews.net. Retrieved from http://www.ipsnews.net/2018/05/united-arab-emirates-entering-sustainable-future/

"The World Bank", (2020). United Arab Emirates: Economic Update - April 2019. (2020). World Bank. Retrieved from https://www.worldbank.org/en/country/gcc/publication/uae-economic-update-april-2019